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Comment by maxander | Hacker News Reader

Is that how it works? Then I'll just ask to be paid in pounds rather than dollars and therefore avoid all U.S. taxes. Brilliant!

That's not how it works, with Bitcoin or any other asset.

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Honest question: if I get paid in USD but then change all my money to British pounds, do I need to pay tax when British pounds increase in value and I trade back to USD?

Is this different than BTC?

Indeed you would- trading on the foreign exchange market, as it's called, works much the same way as trading on the stock market. How taxes work for it are apparently specialized and complicated (see https://www.investopedia.com/articles/forex/09/forex-taxatio...), but you would definitely get taxed.

Yes.

No.

Yes, you do.

not sure I understand the analogy.

i am not saying you don't get taxed with bitcoin. you still pay income tax, sales tax when you use them etc. but when your dollars gain in value due to deflation, do you pay tax on that ? seems that is what we're talking about here. btc gaining value.

Taxes are paid in dollars, so when your dollars change value because of inflation or deflation, your taxes will go up or down by the same amount because they are being paid in the same currency. A dollar can never inflate or deflate relative to itself.

You seem to be trying to make the analogy of bitcoin being a currency, so a better comparison would be to look at tax law for foreign currencies. Luckily, the IRS puts out documents about that very thing: https://www.irs.gov/pub/int_practice_units/fcu_cu_c_18_2_1_0...

Now, whether bitcoin is a currency or an asset is not fully settled, although the IRS treats it as an asset, not a currency: https://www.irs.gov/newsroom/irs-virtual-currency-guidance

I agree, so i think a good analogy would be, you buy a tractor and hold it and for whatever reason that tractor gains value, and you exchange it for a boat next year. At what point do you pay capital gains on that tractor? (it's not a currency, but you're using an asset like a currency)

If the tractor sells for more than you paid for it — or, in your specific example, the boat you traded it for is worth a larger number of dollars than you paid for the tractor, at the time of the trade — then yes; that is the very definition of "capital gains".

Just because the gain isn't in actual dollars, doesn't mean there wasn't a gain. If the gain is somehow denominable in, or reducible to, a number of dollars, then for tax purposes it is a gain.

You realize those gains at the time of the sale or trade. That's when they're taxable.

For most assets, you only pay taxes on the gains when you sell the asset. If you buy stocks, for example, you only pay capital gains if you sell the stock.

You can't simply claim you are a bitcoinian and now all of your income and assets are referenced to BTC. You are still subject to the currency of your resident country. That is the basis of value reference. Not bitcoin.

Edit: if you bought it, but haven't sold it you haven't realized a profit and don't have to pay taxes on the gains yet, but you definitely have to pay taxes on the income as Bitcoin. If you are buying everything with Bitcoin you have just created an accounting/auditing nightmare for yourself, because you owe additional taxes on asset appreciation every time you "use" it.

BTC and USD are not on the same level. That's why your analogy doesn't work.

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